Even as the Centre advocated fiscal prudence measures like freezing dearness allowance and ending negotiated loans to states in a marathon meeting on October 18, the Cabinet today okayed the release of the second instalment of dearness allowance for its employees and pensioners.
The 3 per cent increase in dearness allowance, to be effective from July 1, will cost the exchequer Rs 729 crore in the current fiscal year.
The total outgo on account of dearness allowance in 2002-03 is estimated at around Rs 1,100 crore.
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This includes the amount released in April-June to employees and pensioners, based on a 4 per cent dearness allowance increase in the first instalment.
In fact, finance ministry officials were even considering a proposal that aimed at a lower rate of neutralisation of the price rise at 75 per cent or 50 per cent to restrict expenditure. This too, it seems, did not find favour.
Officials said the Centre would also have to reduce its manpower costs if the non-Plan expenditure had to be cut as a percentage of gross domestic product as envisaged in the Tenth Five-Year Plan.
For states, a dearness allowance freeze will result in cumulative savings of almost Rs 2,300 crore.
Last month, the finance ministry took a proposal to the Cabinet for restricting dearness allowance payments to government employees and pensioners.
While the Cabinet noted the contents of the proposal, it did not take a decision. The government wanted to evolve a broad political consensus on the issue and awaited the outcome of the meeting of chief ministers with Prime Minister Atal Bihari Vajpayee on October 18.
However, a consensus eluded the meeting because the chief ministers were divided on the issue.
While some of them, like Madhya Pradesh chief minister Digvijay Singh, said their states had already frozen dearness allowance till April 2004, others, like Himachal Pradesh chief minister R K Dhumal, said dearness allowance comprised a small portion of the expenditure of their states and should not be cut.
Without a consensus and with threats from workers